What is re: Investing?


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Tags: Benefits Budgets Debt Financial Planning Investing Life Events Retirement Saving Taxes

What is re: Investing?

Tagged: Investing

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In late 2015, the organization behind getsmarteraboutmoney.ca (one of our favourite financial resources here at the AOMBT) launched Re: Investing, a site for specific questions and answers about investing. Similar to Get Smarter About Money, Re: Investing offers unbiased, trustworthy investment information specifically for those living in Ontario.

Recently answered questions include:

Is equity crowdfunding allowed in Ontario?

I need to learn more about investing online with a discount brokerage

Which segregated funds pose the highest risk?

If I don’t work the year before I take out my RRSPs will I pay any tax upon taking them out?

How can I determine the cost of making a mutual fund investment?

Check out Re: Investing for answers to these questions and more. If you have your own questions about financial matters, you can submit a question to the AOMBT's own roster of subject-matter experts through Ask the Expert.

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What should I be looking for when comparing and assessing investment fees? Do you “get what you pay for” when it comes to these fees?

Tagged: Investing

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Fees are a hot topic since lower interest rates and volatile markets are reducing the return on investments, which means many investors are carefully reviewing the fees that they are paying.  In order to determine if you are getting good value, you first need to understand how fees are paid. The most common fee options used in investment advising and financial planning are:

  • Commissions paid based on the products sold (e.g., mutual funds)
  • Fees based on assets under management
  • Fee for service or hourly rate

In the case of commissions, investment advisors may not charge a fee for services; however, imbedded in the product they are selling are the fees paid to them. This includes the Management Expense Ratio (MER) Fees, which can range from 1% to 4%, and Trailer Fees, which are the fees paid by the mutual fund company to the investment advisor. Mutual Fund companies pay both of these fees annually. Many advisors sell mutual funds as this provides their main source of income.

Fees based on assets under management may be the best option if you have a larger portfolio, since the investment advisor charges a flat fee.  Fees range from 1% to 2.5%. As a general rule, the larger your portfolio, the lower your fee. Many times they can be negotiated downwards. As your account grows, so do their fees, so they have an incentive to grow your investments.  The flip side is that they get paid regardless of whether your investment grows or decreases. You may also want to ask if they are being paid any additional fees, such as commission or fees from mutual fund companies.

Fee for service is based on an hourly rate or set fee for the service.   A comprehensive plan takes time to develop, and the advice is independent of any investments that you may purchase. These plans can cost as little as $500 or upwards of $3,000. A good plan provides you strategy for a period of time.  These advisors are paid for their time only and do not receive any commission or other fees.  Planners do not implement your plan, but they will provide guidance for you to do so. You will need to buy and sell your own investments, which can be done through a direct trading account or through an investment account manager.

When evaluating if you are getting your money’s worth for any service and advice, know the fees upfront and what services are being provided. Evaluate the services and advice so you can monitor the value.  Ask questions and evaluate if the fee is reasonable for what you are getting. Starting in July 2016, mutual fund and investment dealers will be required to report, in writing, costs and portfolio performance each year. All fees paid are tax deductible so when evaluating the services, be sure to consider the after tax cost of the fees. 

In the end, the less you pay in fees, the more money that ends up in your pocket, so take the time to be an informed consumer.

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A friend recommended a financial planner to me and I'm meeting with them next week. I feel like I have a million questions and don't know where to start. What can I expect from an initial meeting? What aspects of my financial plan should I focus on first?

Tagged: Financial Planning Investing

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A financial planner looks at all aspects of your finances and works with you to develop a roadmap based on your definition of success and your financial goals.   Before meeting with a financial planner it’s important to review your financial goals, as well as what is important to you in a business relationship, both of which will help you select the best person. 

In the initial meeting, you need to start the process of determining if the planner has the qualities necessary to help you achieve your financial goals and dreams. You should consider their qualifications, business approach, and fee structure. Most importantly, you need to consider if you can work with this person – is the chemistry of the relationship right?  Here are a few tips for you to contemplate:

 Qualifications and experience of the financial planner:

  • Review the qualifications of the financial planner. In Ontario, there are no legislated standards in place for those who offer financial planning services, but there are professional associations with which you can check if they are in good standing. Take the time to verify the planner’s credentials.
  • Knowing how long they been practicing, and the typical clients they work with will provide insight into whether they will meet your needs and goals. 
  • Do they have any specialized training?
  • Do they understand the nature of being a self-employed contractor? Have they worked with midwives or other professionals with comparable pay structures?  
  • Financial planners selling products such as mutual funds and insurance or those providing advice are regulated by provincial regulatory bodies.  Ask which bodies they are members of, and if they have ever been subject to any disciplinary action.

Financial planning approach and services:

  • The types of services vary between planners.  Do you want a plan that is all encompassing or are you focused on specific areas within your financial plan? 
  • Will the planner assist you in implementing your plan?
  • Some planners may be fee- for-service only while others may sell financial products such as insurance, mutual funds, stocks or bonds. Some planners may specialize in one area such as tax or estate planning.  You need to be clear about your needs before selecting the planner.
  • Do they work as an individual or are they part of a team or organization?  If they are associated with an organization, learn more about the organization’s mission and credo.

Compensation structure and fees:

  • Planners may be paid in various ways.  Fee- for-service is based on an hourly rate or a set fee for the service provided.  Some planners charge a percentage of the assets they are managing on your behalf.  Other planners may receive a fee for the products they are selling to you, such as insurance or mutual fund products, and so the cost of the financial plan is covered by these fees. 
  • The planner should provide you with the fee structure being charged depending on the services selected. Take time to review this information carefully.  

Documentation and evaluation

  • Ask the planner to provide you with a written agreement outlining details of services to be provided, including method of compensation and any business affiliations.

Communication skills and fit

  • As with any relationship, good communication is an important aspect to ensure your goals are met and the plan is relevant and updated as needed. Do you feel that this planner listens to you, understands your needs, and provides objective advice?

Remember though, it is ultimately your responsibility to manage your assets and important for you to remain aware of how your assets are being invested.  Choosing the right financial planner should assist you in achieving your overall financial goals and well-being. - JR

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What are the pros and cons of holding a non-arm's length mortgage for a rental property within my RRSP?

Tagged: Financial Planning Investing

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Most people are not aware that they can hold a mortgage in their RRSP.  It can be used to generate consistency and stability during periods of fluctuation in the equity markets, and when there are lower returns on fixed income investments.  This type of investment is considered a fixed income investment as it earns only interest income. Both arm’s-length and non-arm’s length mortgages can be held within your RRSP, but there are different rules for each.

It is important to understand the difference between arms-length and non-arm’s length. Two people are considered to be dealing at arm’s length with each other if they are independent and one does not have undue influence over the other.  However, the Income Tax Act deems some people NOT to be at arm's length with each other (non-arm's length).  This is the case with what the Income Tax Act calls "related persons": individuals connected by blood relationship, marriage or common-law partnership or adoption.  Blood relationships do not normally include aunts, uncles, nieces, nephews, or cousins for purposes of the Income Tax Act.

You must have a self-directed RRSP and a sizeable amount of money to make this type of investment worthwhile.  The fees to set up a mortgage inside of your RRSP are quite high, so to make it financial feasible you need to have a fairly large mortgage. There are also ongoing annual costs. The set-up fees range from $800 to $1,200, plus an appraisal fee on the property. Annual fees vary from $350 to $500, plus the mortgage insurance cost for a non-arm’s length mortgage. 

Any investment inside your RRSP must be a “qualified investment” as per the Income Tax Act. A non-arm’s length mortgage must be insured by Canada Mortgage and Housing Corporation (CMHC) to become a qualified investment.  The mortgage also has to be administered by an approved lender under the National Housing Act. Most major commercial banks no longer perform this service as it was not profitable for them. The rates and terms for the mortgage must follow normal commercial practices.  Mortgage payments are paid to your RRSP and are not considered contributions from you. 

The main advantage to having a mortgage inside your RRSP is the interest income.  The interest rates are usually higher than if you invested in a Bond or Guaranteed Investment Certificate (GIC). 

The disadvantages are the high fees, the dollar value required inside your RRSP, a potential lack of diversification inside your RRSP, and the probability of earning a higher return on other investments.

The time to consider this type of investment inside your RRSP is when the interest rates are high and the equity markets are extremely volatile. This is a specialized product that suits individuals with a high dollar value in their RRSP who are looking for a predictable rate of return.

In today’s economy, you can obtain a mortgage at a rate of 2.6% for a five year term. The TSX averaged annual returns of  4.7% for the last 5 years, and 6.7% over the last 20 years.

One example would be to obtain a five year closed mortgage at 2.6% with a 25 year amortization outside of your RRSP and to invest your money in quality equities inside your RRSP.

As always, you should be consulting with a qualified advisor on your individual goals and needs. - J.R.

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Are there any drawbacks in investing in those funds that change based on your retirement age?

Tagged: Investing Retirement

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These funds, called target-based or target-date funds, are designed as a simple investment strategy where the asset mix becomes more conservative as the fund approaches the maturity or end date.  The focus of target-based portfolios is usually the preservation of capital. Often these types of funds are used by investors who feel overwhelmed by the vast choices of mutual funds in the market today. Target-based funds rebalance the portfolio on a regular basis.

These types of funds have been popular in the Unites States since the mid-1990s and are now more readily available in Canada.

As with any type of investing, you need to ensure that your selections meet your needs by evaluating your personal risk tolerance and the need for growth or income in your portfolio. Drawbacks of these types of investments are outlined below.


Fees are often 1% or higher than other similar portfolios. When assessing the returns in the markets, the TSX has averaged 7% over the past 40 years.  Due to the lower rates on interest being paid on investments, the fees charged on investments become a very important factor when reviewing the type of investment. Saving 1% every year on your investment portfolio can significantly increase your retirement savings over the long term.

Lack of Flexibility:

The funds asset mix is set and cannot be altered by the individual investor. Your needs may change over your life, and this plan does not allow for changes such as income or job changes, divorce, death, or birth of a child. If these funds are held outside of your RRSP, there are tax implications that should be assessed to determine if this is the most tax effective strategy for your income level. In addition, these funds may only address one aspect of your retirement needs – either saving for retirement or post-retirement income.

Risk Tolerance:

With any investment, you need to assess your risk tolerance, goals and financial needs.  Target-based funds do not have an industry-standard asset mix and will vary from fund to fund.  Some may be more aggressive, and the fluctuation in the market may be more risky than your risk tolerance level. Others may be more conservative and may not grow enough to meet your needs.


Many investors feel overwhelmed by the choices in the market and select these funds to provide security and simplicity for their portfolios and retirement. It is important, no matter what type of investments you hold, to have an annual review of your accounts and assets in order to determine if changes are necessary. Without this annual process, investors are often caught unaware that their returns and savings may not meet their retirement needs.

Target-based funds are just one of the many types of mutual funds available to you.  Regardless of your investment knowledge or time frame for investing, you should always obtain advice to ensure the investment strategy is aligned with your needs and goals. - J.R.

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What is an MER?

Tagged: Investing

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MER stands for Management Expense Ratio. A Management Expense Ratio is a benchmark used to evaluate the amount of fees paid for management and administration of mutual funds. Another term used in mutual funds is the management fee; this is different from the MER as it does not include the administrative expenses.

Management expenses include the direct costs incurred by the investment company or bank for managing the investments, including the hiring of the portfolio managers and the investment team.  The portfolio manager and investment team are responsible for the buying, selling and monitoring the investments in the mutual fund.

Administrative expenses include all the costs of operating the mutual fund such as accounting and distribution fees, legal, marketing and other administrative expenses. These fees are not related directly to the investment but are required to ensure the mutual fund is being run correctly. Included in the administration costs are the trailer fees paid to the investment advisors selling the mutual funds to you. This is like a commission, and the investment advisor receives this amount regularly regardless of how your investment is performing.

The MER percentage is calculated by totaling the management and administrative expenses and then dividing that amount by the average value of assets invested in the mutual fund. For example, if you have a mutual fund that has an average of $50 million in assets and a MER of 3%, then the total fees would be approximately $1,500.  The lower the MER, the less it costs to manage and operate the mutual fund.

Each mutual fund discloses the MER in their literature, but you do have to make sure you are comparing the same information.  Some funds may report the management fee ratio separately from the MER. For example, the management fee may be reported as 1.5% and the MER as 1.89%.  As the management fees are included in the MER, you need to subtract the management fee ratio of 1.5% from the MER, resulting in the total operating or administrative expense of .39%.

MERs are deducted from the income of the mutual fund prior to the funds being distributed, which means that mutual fund companies all present the return on investment net of expenses. In other words, if the fund shows an 8% return and the MER is 1.8%, the fund actually earned 9.8%.

Understanding MERs helps you to evaluate the effectiveness of the fund manager. Knowing how mutual funds are compensated and how expenses are covered  will help you to evaluate the investment and ensure you are getting the best returns for your hard-earned dollars.  You should review the MERs along with all management fees your advisors are charging (whether buried in the investments or paid directly) to ensure you know what your expenses are and that you are receiving the level of advice you are paying for.  It is well worth the time to review management and investment fees to ensure you are not paying too much. -J.R.

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I'm retiring soon. How can I determine what is better for me, an annuity or a RRIF?

Tagged: Investing Life Events Retirement

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The money that you accumulate in your RRSP (Registered Retirement Savings Plan) or other retirement saving plans must be transferred into a RRIF (Registered Retirement Income Fund) and/or an annuity by December 31st of the year you turn 71.  Understanding the differences between them will help you decide which will work best for you.


An annuity is a financial product sold by insurance companies that you purchase with a lump sum. An annuity provides steady, guaranteed income over the term of the annuity. Depending on the type of annuity, the income is usually guaranteed for your lifetime or a certain time period, and the income will stay the same throughout this period.

You can’t withdraw any additional money from your annuity.  Once you have purchased the annuity you are locked into it.   The insurance company makes all the investment decisions and you receive the regular payment without having to make any investment decisions.

It is important to understand the rates of returns when purchasing an annuity.  The value for the annuity is set when you purchase it, so in times of lower interest rates, your income will be lower than when interest rates are higher. The timing of when you purchase an annuity can also make a significant difference to your retirement cash flow. For example, an annuity of $100,000 at 2% would provide a yearly income of approximately $5,202 whereas if interest rates were at 5% that same $100,000 annuity would pay approximately $6,760 yearly. Annuities can be purchased at any time and not just when you are retiring.


A RRIF is a tax deferred retirement plan that is registered with Canada Revenue Agency and is usually administered by a financial institution such as an insurance company or bank. Investment decisions with your RRIF are made by you and your investment advisor, which gives you control over your money and investment decisions.

You must withdraw money from your RRIF each year and the minimum amount will change depending upon your age. The government provides a table of the minimum percentage you are required to withdraw each year after age 71. Unlike an annuity, there is not a guaranteed amount and the level of income is dependent upon how well your investments are growing.  However, a RRIF provides flexibility because you can withdraw additional money.

A RRIF is set to decline yearly so that at age 95 it will expire.  You can have multiple RRIFs at various financial institutions.

Which one to choose?

If you’re more comfortable with a steady flow of income, you may want to purchase an annuity. If you want to ensure you have access to additional income for future needs, then a RRIF would be best.  Either way, you should consider the tax implications of both a RRIF and annuity. Both are taxable when received.  A RRIF will continue to grow free of income taxes until you withdraw the funds.  The annuity will be taxable in the same amount each year, unless it is indexed.

There is no one right answer and the important thing to consider are your cash flow needs and how to best fund them with the resources you have.  Working with a qualified advisor will help you determine the best mix for your needs.  You can use both an annuity and a RRIF to provide the security of a steady income stream and the flexibility of having cash available if you require it. -J.R.

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How do I manage my investments and assets during retirement? I want to make sure I keep my capital at a reasonable level while still managing to enjoy the money I set aside.  

Tagged: Investing Retirement

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In managing your investments and assets during your retirement, you first need to determine the amount of cash you need for your desired lifestyle.  Once you have determined the amount of cash you need, then you can review your various sources of income to determine the best course of action for your retirement. You can plan the mix of income and use of cash to fund your retirement and minimize taxes to ensure you get the most out of your money.

When you retire, you may have a few different sources of income to report on your tax return, such as Canada Pension Plan, Old Age Security, income from an employee pension plan, and investment income on any assets not invested in a TFSA, RRSP or RRIF.  Understanding the type of income you are reporting on your tax return each year and the related tax implications allows you to manage your taxable income and the amount of income tax you have to pay each year.  The less money spent on taxes allows you to keep more money for your retirement.

Withdrawals from your RRSP are included in your taxable income. It is important to review the amount you are taking out each year and assess the tax bracket to ensure you are paying the lowest income taxes possible. 

You are required to convert your RRSPs into a RRIF by December 31st of the year you turn 71.  A mandatory minimum withdrawal is required every year from your RRIF once you are 72.  This minimum increases every year, and will increase your taxable income. If the value of your RRIF continues to grow, then the income will continue to increase as you age.

It is important to review the value of your RRSP and the minimum RRIF withdrawal that you will be required to take each year once you turn 72.  This upfront planning will allow you to manage your withdrawals before you turn 72 and control your level of taxable income to minimize taxes during your retirement.  You may need to consider withdrawing more than minimum  each year to control the amount of income taxes owing.

If you have excess cash from withdrawals from your RRSP or RRIF, investing in your TFSA is a good strategy as the investment income earned is tax free. Withdrawals from your TFSA are not included as income for income tax purposes.  A TFSA is not a bank account;you cannot withdraw and then put money back in the same year. If you withdraw money from a TFSA – you have to wait until January 1 of the following year to put the same amount withdrawn back into your TFSA.

I recommend working with a qualified advisor to review these areas to ensure you are able to have your desired retirement lifestyle.  A review of your plan should be done at least once per year. -JR

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I’m at least 20 years away from retirement. Although I know my goal is long-term growth, I can’t help but panic when I see any dips in my investments. How often should I be reviewing my investments?

Tagged: Investing Retirement Saving

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This is a great question!  Reviewing your investments too often can cause stress and anxiety depending on what is happening in the market place. Your focus should not be just the returns your investments are making, but also your net worth and cash flow. These 3 key areas should be reviewed annually.

What is net worth?  Net worth is calculated by taking all the assets you own (e.g. house, cars, RRSPs, investments, etc.) and subtracting your liabilities (e.g. mortgages, student or car loans, credit card debts, etc.). The goal is to have your overall net worth grow each year. Net worth is a good indicator of your overall financial position.   You could have a great return on your investments of 10% or higher but if your overall net worth is declining, then it’s an indication that you may be living outside of your means.    

What is cash flow? Cash flow looks at all of your income and expenses on a monthly basis to ensure that inflows are greater than the outflows. In other words, is your total income higher than your total expenses? If not, then it doesn’t matter how good the return on your investment is because your overall net worth will be declining. This will impact your lifestyle now and at retirement.  There are lots of free cash flow products available, even mobile apps for your smartphone, to help you review and monitor your cash flow as well as set up a budget.

Having a well-balanced portfolio is key to reducing anxiety due to market fluctuations.  Reviewing your investments along with your net worth and cash flow should be done at least annually.  You may also want to review them before making any major changes in your life (such as starting a new job or moving). When reviewing these 3 areas of focus, it is also important to define what you consider a balanced lifestyle to be.  Is it being able to have an annual vacation with the family or having a larger home?  It is important to enjoy your journey through life and not just focus on how your investments are doing!

Setting a goal helps you to review your net worth, cash flow and investment objectively and, if done annually, allows you adjust your goals based on the overall performance and not what is happening in the markets.  Here are some retirement strategies that can help you achieve your goals over the long term and still have a great night sleep.

  • Pay yourself first:  take the top 10% of your earnings and invest those funds annually. 
  • Set a budget:  determine how you can live comfortably on 90% of your income and still enjoy the fruits of your hard work. 
  • Enjoy the journey:  plan an annual vacation, make a special visit to family or friends or a monthly dinner out or spa treatment – choose something important to you.
  • Review your net worth, cash flow and investments annually:  make it a comprehensive financial review, not just a review of your investments.
  • Be real: set realistic goals every year but live passionately and dream big!
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For years, I only invested in Canadian companies as I was advised that the Canadian economy was the most stable. Am I limiting my potential returns by avoiding US or international investments?

Tagged: Investing

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There are two main reasons for considering investing outside of Canada: diversification and growth.

Diversification helps protect you from losing all your assets when there are changes in the markets whether invested at home or globally. You’ve probably heard the expression, “Don’t put all your eggs in one basket”. The key to diversification is that you are spreading the risk of changes in the market over various investments so that if one sector declines, another sector may increase. A good example is the oil sector. Within in the past year, oil stocks have declined from 30% to 60%. If you had 10% of your portfolio invested in that industry, then your losses would only be a small percentage of your portfolio. However, if your portfolio had a larger share, then the decline would be more significant.

It is important to understand the various markets around the world. There are Canadian, US, International (all countries other than North America) and global markets (worldwide including North America). The global markets are also divided into emerging and developed markets.  

If your portfolio is focused on growth, you could consider the emerging markets, which often experience rapid growth. Investing in these markets may provide growth opportunities not available in other more established markets. That said, there are higher risks associated with emerging markets, such as political instability, availability of information, ability to access funds, and the time required to cash in your investments.

When investing globally, it is important to consider fluctuations in currency. The Canadian dollar is currently declining compared to the US dollar. In the past year, we have seen the Canadian dollar move from par to the low 80 cent range. If you held an investment in the US worth $1,000, a year ago it would have been worth $1,000 in Canada when the dollar was at par. Today, that US investment is worth approximately $1,180. When our dollar is weak against the foreign currencies we invest in, our return on investment is impacted by the increase in the value of the currency as well as on the investment.  If you choose to invest in currencies outside Canada, you may want to consider looking into currency hedging to reduce the risks of change in the Canadian dollar.

There are also tax implications to investing outside of Canada. Dividend income is one example as only dividends received from Canadian companies are eligible for the dividend tax credit. In addition, there could be foreign income taxes withheld on distribution to non-residents. Depending on the tax treaty Canada has with that country, you may or may not receive any credit for those foreign-paid taxes.

There are no set guidelines to the amount of diversification you should have in your portfolio. Professionals evaluate what is happening in the global economy and often adjust annually to reflect those changes and their investment strategy; which means that strategies are widely diverse.

The best strategy for your portfolio is a well-balance mix that allows you to tolerate risk while getting solid returns. In other words, you don’t want to chase trends in the market trying to diversify your portfolio. Working with a good advisor will help you to make sound financial decisions that match your investment strategy.

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